As a taxpayer, it's essential to understand the rules surrounding quarterly tax installments to minimize your tax liability. According to the Canada Revenue Agency (CRA), individuals who earn taxable income with no tax withheld or insufficient tax withheld may be required to make tax installments. This includes those with rental, interest, dividend, capital gains, or self-employment income.

To determine if you need to make tax installments, the CRA considers your net tax owing in the current year and the two preceding years. If your net tax owing exceeds $3,000 ($1,800 for Quebec residents), you may be required to make installment payments. However, there are ways to reduce or eliminate your installment requirements.

One strategy is to request tax withholding or increase the amount of tax withheld from certain income sources, such as old age security or Canada Pension Plan benefits. You can also have additional tax withheld from employment income, pension benefits, or registered retirement savings.

Another approach is to choose the right installment option. The CRA offers three options: the no-calculation option, the prior-year option, and the current-year option. The no-calculation option may be the best choice if your income, deductions, and credits remain relatively consistent from year to year. However, if your current-year income, deductions, and credits differ significantly from the previous year, you may want to consider the prior-year or current-year option.

It's also important to note that some types of income, such as self-employment, investment, and rental income, and capital gains, are not subject to tax withholding. In these cases, you may need to make installment payments to avoid penalties and interest. We are here to help you make more informed decisions on your options in the event most your income is coming from your portfolio.

To minimize your tax liability, consider the following tips:

• Consult with your accountant to determine the best installment option for your situation.
• Review your income, deductions, and credits regularly to ensure you're making the most of your installment payments. Check in with us to get a better understanding of your capital gains and other income sources for the year if your tax installment falls between reviews. 
• Consider increasing tax withholding from certain income sources to reduce your installment requirements.
• Take advantage of tax credits and deductions available to you, such as the RRSP contribution, to reduce your taxable income.

By understanding the rules surrounding quarterly tax installments and implementing these strategies, you can minimize your tax liability and keep more of your hard-earned money.